By Joshua Kirby
Veolia Environnement SA's deal to buy a 29.9% stake in Suez SA from Engie SA has been in the works since late August, but the process has been anything but smooth.
French waste-and-water-management company Veolia bought the stake in its peer from energy company Engie with its second bid. But Suez has been opposed from the beginning and a legal wrangle has ensued. On Nov. 19, court bailiffs seized documents from the offices of Veolia and Engie, as well as investment firm Meridiam, as part of a court order requested by Suez.
At the end of August, Veolia launched an initial bid for the 29.9% stake at 15.50 euros ($18.47) a share. Engie had previously initiated a strategic review that included a possible sale of its Suez stake, which meant Veolia's bid was considered likely to succeed.
Analysts at Bryan Garnier said that it made sense for Engie to divest its Suez stake as part of wider streamlining, and that the acquisition would boost Veolia's international profile.
Suez, however, was opposed from the beginning of the deal. Management expressed its opposition to Veolia's approach in September, characterizing the bid as "hostile." Suez said the offer undervalued the company, and that it had concerns over antitrust issues and potential job cuts.
On Sept. 17, Engie said it wouldn't accept the offer under the initial terms, but would be open to an improved offer. As expected, on Sept. 30, Veolia increased its bid to EUR18 a share, valuing the 29.9% stake at around EUR3.4 billion.
On Oct. 5, Veolia said Engie had accepted the offer. As part of the offer, Veolia would guarantee job security for all Suez employees in France, while Meridiam would acquire Suez's French water-activities arm to preserve competition after analysts raised the prospect of potential antitrust issues.
Suez continued to oppose the deal, warning of "several serious anomalies" in the bid in a letter to French Finance Minister Bruno Le Maire. It also voiced support for a rival bid from private-equity firm Ardian, which had expressed interest in buying the stake from Engie.
A twist came on Oct. 9, when a French court ordered the suspension of the stake purchase. The legal reasoning behind the suspension, requested by Suez, was that the company's social and economic committees hadn't been consulted over the deal. Veolia called the decision "incomprehensible" and "grotesque," arguing that only Suez management had the capability to organize such a consultation, and that its failure to do so was born of its opposition to the deal. Veolia said it would appeal the decision.
Early in November, Veolia confirmed that it still intended to make a full takeover bid for Suez, offering the same EUR18 a share price for the remaining share capital. It said the bid would be launched when the Suez board of directors showed itself amenable. Suez responded by noting the lack of a takeover offer to date, saying the only approach had been via media reports. Suez stressed that any takeover offer would have to reflect the company's value, as well as set out the detail of the combination and any asset sales.
In an apparent further setback, Suez said on Nov. 19 that the Paris Court of Appeal had confirmed the earlier decision suspending the effects of the stake purchase. Since no committee consultation had been carried out before the deal was finalized on Oct. 5, the effects of the sale remained suspended until that took place, according to the ruling, Suez said. "Effects" in this context seems mostly to refer to the voting rights conferred on Veolia as holder of a stake in Suez. The company added that it had not received the necessary information from either Veolia or Engie to carry out the relevant employee consultations.
For its part, Veolia insisted that Suez had told the court that it had finalized the consultation on Nov. 5, and that since the consultation period was three months, it would recover all its rights relating to the stake purchase on Feb. 5 at the latest. Suez, however, disputed this, arguing that the starting date for the consultation hadn't been fixed.
The legal developments took a further twist on Nov. 26, when court bailiffs entered the offices of Engie, Veolia and investment firm Meridiam to seize documents relating to the deal, according to media reports. According to the reports, the court order was requested by Suez, which apparently suspected collusion between Veolia, Engie and Meridiam. Suez is also said to suspect that Meridiam's purchase of Suez Eau was agreed as early as July, even before Engie Chairman Jean-Pierre Clamadieu announced the company was considering selling its stake in Suez.
Not only do the bones of contention remain unresolved, there isn't yet any agreement between the parties as to when they will be. Veolia says early February is the latest possible end to the consultation period Suez is insisting on; Suez disagrees. If and when these issues are resolved, Veolia will launch a full takeover bid for its peer.
As for the document seizure, Veolia, Engie and Meridiam have the right to request a counter-judgment to the court order, in which case the documents seized would be held pending further legal developments, according to French law.
Write to Joshua Kirby at Joshua.Kirby@dowjones.com
(END) Dow Jones Newswires